Trust in central banks is critical for the effectiveness of a monetary policy, and for reaching price stability. Today’s guests, Carin van der Cruijsen (senior researcher at De Nederlandsche Bank, the Central Bank of the Netherlands) and Jakob de Haan (professor of political economy at the University of Groningen, Netherlands) talk about the importance of explaining monetary policy actions to the general public, the need for financial knowledge, the relation between trust and inflation, the main driver of trust in financial institutions, and the communication sensitivity of communication by financial markets.
Price stability and independence of the Central Bank
Carin van der Cruijsen:
most central banks have an objective of price stability, and it’s easier to obtain price stability when inflation expectations are well anchored. And trust in central banks can help to anchor those inflation expectations. And trust in central banks is also important for their independence. So it’s going to help preserve the central banks legitimacy and also shield it from political pressure.
Need for clear communication
Jakob de Haan:
(…) there are two reasons why central banks communicate. One is what is called the central bank effectiveness view. So monetary policy becomes more effective by using communication. That type of communication is mainly directed towards financial markets. The second reason why communication is important is because of accountability reasons. Central banks are independent and it’s widely believed that independent central banks should be accountable central banks. In other words, they should explain what they do, they should communicate not just to politicians, but also to the general public.
About her PhD “The Economic Impact of Central Bank Transparency”
(…) at the time we wanted to know how consumers perceive the transparency of the ECB. And what we found as well, a lot of people don’t even have a perception of the transparency of the ECB, for example, because they do not know that the ECB exists. And there’s also like a gap between what they know about transparency and how they perceive the transparency of the central bank and transparency perceptions they do matter for trust. So people that perceive the ECB to be more transparent, they have more trust in the ECB.
Alan Blinder’s Book
In the interview, we talked about the book by Alan Blinder, “A Monetary and Fiscal History of the United States 1961-2021“, the question was: “In October, Alan Blinder published his book, “A Monetary and Fiscal History of the United States 1961-2021”, which is an engaging history of an interplay of monetary and fiscal policy that would determine the economic fate of the US. What can the ECB or the Dutch Nederlandsche Bank learn from this?”Listen to the reply by Jakob de Haan (or read it in the interview transcript, see below)
Carin van der Cruijsen’s Ph.D
The Ph.D by Carin van der Cruijsen can be found on the website of De Nederlandsche Bank
Listen to the interview with Carin van der Cruijsen and Jakob de Haan
Transcript of the Interview
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